"Interest Rates and Budget Point to Market Stability"
For the twenty sixth consecutive month, the Bank of England Base Rate has once again been held at the historic low of just 0.5% which continues to be good news for borrowers. But what of the bigger picture? Anyone expecting George Osborne to have produced a magic wand to “fix” the property market will have been disappointed by last month’s budget. Having said that does it need fixing? After years of considerable growth (the North West has seen a 180% increase since January 1995), values may have remained stable over the year (0.1% increase nationally, but with wide regional variations).
Property has therefore proven to be a solid and worthwhile investment. Which other investment can you live in tax free? And the future looks stronger than some pessimists would have us believe. For example, mortgages are beginning to free up, with some providers once more requiring just 10% deposit. Buy-to-let mortgage uptake has doubled in the past year.
Affordability is also relatively good, with mortgage interest rates around 25% of what they were in 1992. Many people are using the saving to reduce their loan, help their children buy, or invest in buy-to-let property. Whilst fears about inflation may be a worry, unlike the spendthrift days of the 1980s and 1990s, most of the factors currently fuelling inflation (such as oil prices and VAT) cannot be controlled by a rise in interest rates, so it is extremely unlikely that we will ever return to the days of 15% interest, or anything like it.
Many commentators suggest that relatively low interest rates could be around for many years to come. Indeed, the “swap rate” - the borrowing rate between institutions (currently 1.14%) is currently no more than 4.2% for banks lending to each other over a “fixed term” of 12 to 30 years!
With spring upon us we as estate agents have certainly noticed an increase in activity generally and remain very upbeat about the market. This does not mean that prices are due to rise, but that correctly-priced property is likely to sell faster and that the gap between asking and selling prices is likely to narrow during this spring market.